General Overview
On July 17, 2018, we completed the Sale of The Winthrop Corporation to Khandwala
Capital Management, Inc., a company principally owned and controlled by Amit S.
Khandwala, the Co-Chief Executive Officer and Chief Investment Officer of
Winthrop, prior to the Sale, for $6,000,000, subject to certain adjustments for
intercompany accounts at closing (see Note 1 to the Consolidated Financial
Statements). See "Item 1. Business - General Development of Business".
The Winthrop Corporation's results of operations through July 17, 2018 has been
accounted for as a discontinued operation in the Consolidated Statements of
Operations for the year ended December 31, 2018.
Upon the consummation of the Sale of The Winthrop Corporation, we became a
"shell company", as defined in Rule 12b-2 of the Exchange Act. Because we are a
shell company, our stockholders are unable to utilize Rule 144 to sell
"restricted stock" as defined in Rule 144 or to otherwise use Rule 144 to sell
our securities, and we are ineligible to utilize registration statements on Form
S-3 or Form S-8 for so long as we remain a shell company and for 12 months
thereafter. As a consequence, among other things, the offering, issuance and
sale of our securities is likely to be more expensive and time consuming and may
make our securities less attractive to investors. See "Item 1. Business -Sale of
Winthrop Corporation", and "Item 1A. Risk Factors".
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Our Board of Directors is considering strategic uses for the Sale of The
Winthrop Corporation proceeds including, without limitation, using such funds,
together with other funds of the Company, to develop or acquire interests in one
or more operating businesses. While we have focused our development or
acquisition efforts on sectors in which our management has expertise, we do not
wish to limit ourselves to, or to foreclose any opportunities in, any particular
industry or sector. Prior to this use, the Sale of The Winthrop Corporation
proceeds have been, and we anticipate will continue to be, invested in
high-grade, short-term investments (such as cash and cash equivalents)
consistent with the preservation of principal, maintenance of liquidity and
avoidance of speculation, until such time as we need to utilize such funds, or
any portion thereof, for the purposes described above. The directors will also
consider alternatives for distributing some or all of its cash and cash
equivalents to stockholders (see Note 1 to the Consolidated Financial
Statements).
Investments
Investment in undeveloped properties.
The Company owns certain non-strategic assets, which includes an investment in
land and certain flowage rights in undeveloped property (the "properties")
primarily located Killingly, Connecticut, which were fully impaired as of
December 31, 2018, due to the Company's belief that the value of the land is
nominal as a result of ongoing remediation efforts and no active market for sale
of such land.
Environmental matters
On September 26, 2014, the Connecticut Department of Energy and Environmental
Protection ("DEEP") issued two Orders requiring the investigation and repair of
two dams in which the Company and its subsidiaries have certain ownership
interests. The first Order required that the Company investigate and make
specified repairs to the ACME Pond Dam located in Killingly, Connecticut. The
second Order, as subsequently revised by DEEP on October 10, 2014, required that
the Company investigate and make specified repairs to the Killingly Pond Dam
located in Killingly, Connecticut. The Company administratively appealed and
contested the allegations in both Orders. On July 27, 2017, the Company entered
into a Consent Order with the DEEP relative to Killingly Pond Dam. The Killingly
Pond Consent Order required the Company to continue to perform routine
maintenance and administrative procedures consistent with DEEP's Dam Safety
regulations, the cost of which was not material to the Company's financial
position or results of operations.
On July 27, 2018, the Company entered into a Consent Order with the DEEP
relative to Acme Pond Dam. The Acme Pond Dam Consent Order required the Company
to investigate and recommend repairs to Acme Pond Dam. Based up on the work
performed by the Company's retained consulting engineering firm, the Company
submitted its recommended Action Plan (the "Action Plan") for Acme Pond Dam
pursuant to the Consent Order on November 30, 2017 and such recommended Action
Plan was approved by DEEP as submitted on May 23, 2019. The estimated cost of
contracted work to be performed under the Action Plan was $90,000 and was
accrued for at December 31, 2018. Total expenses, including professional fees,
for the repair work conducted in accordance with the Action Plan during the year
ending December 31, 2019 were approximately $150,000.
All repair work required for both the ACME Pond Dam and the Killingly Pond Dam
was completed as of December 31, 2019. DEEP issued a Certificate of Compliance
for Consent Order for the ACME Pond Dam on February 7, 2020. The Company is
currently waiting for the final administrative sign off for Killingly Pond Dam.
On February 11, 2020, the Company and its representatives met with the Town of
Killingly Town Council to discuss a proposed ownership transfer of the
properties to the Town of Killingly or a group of interested parties. The
proposal is currently under the review of the Town of Killingly Town Council, in
conjunction with the Town Manager.
Management discussion of critical accounting policies
The following discussion and analysis of the financial condition and results of
operations are based on the consolidated financial statements and notes to
consolidated financial statements contained in this report that have been
prepared in accordance with the rules and regulations of the SEC and include all
the disclosures normally required in annual consolidated financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates that affect the reported amounts of assets, liabilities,
sales and expenses, and related disclosures of contingent assets and
liabilities. We base these estimates on historical results and various other
assumptions believed to be reasonable, all of which form the basis for making
estimates concerning the carrying values of assets and liabilities that are not
readily available from other sources. Actual results may differ from these
estimates.
Certain of our accounting policies require higher degrees of judgment than
others in their application. These include stock-based compensation and
accounting for income taxes which are summarized below.
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Stock-based compensation
Stock-based compensation cost for employees is measured at the grant date based
on the fair value of the award and is recognized as an expense on a
straight-line basis over the requisite service period, which is generally the
vesting period. Stock-based compensation cost for consultants is initially
measured at the grant date based on the fair value of the award, remeasured each
reporting date until the instrument vests, at which time the cost is
established. The cost is recognized as an expense on a straight-line basis, as
adjusted each reporting period, over the requisite service period, which is
generally the vesting period. See Note 10 to the Consolidated Financial
Statements for further information regarding the Company's stock-based
compensation assumptions and expense.
Income taxes
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to carryforwards and to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The accounting for uncertain tax positions guidance requires that the Company
recognize the financial statement benefit of a tax position only after
determining that the Company would more likely than not sustain the position
following an audit. For tax positions meeting the more-likely-than-not
threshold, the amount recognized in the financial statements is the largest
benefit that has a greater than 50 percent likelihood of being realized upon
ultimate settlement with the relevant tax authority. The Company recognizes
interest and penalties on uncertain tax positions as interest and other
expenses, respectively.
Results of Operations
Year ended December 31, 2019 compared to the year ended December 31, 2018
For the year ended December 31, 2019, the Company had a loss from continuing
operations before income taxes of $1,978,000 compared to a loss from continuing
operations before income taxes of $2,487,000 for the year ended December 31,
2018.
The decreased loss of $509,000 was primarily the result of
decreased Compensation and benefits of $352,000, decreased impairment loss of
$355,000, increased other operating expenses of $393,000, and increased interest
income of $195,000.
Compensation and benefits
For the year ended December 31, 2019, Compensation and benefits were $449,000 as
compared to $801,000 for the year ended December 31, 2018.
The decreased Compensation and benefits of $352,000 in 2019 was primarily the
result of less employees after the sale of Winthrop in 2018.
Other operating expenses
For the year ended December 31, 2019, Other operating expenses were $1,791,000
as compared to $1,398,000 for the year ended December 31, 2018.
The increased operating expenses of $393,000 were primarily the result of
increased consulting fees as a result of less full-time employees and increased
legal fees related to reviewing strategic opportunities. The increased
expenses were partially offset by decreased reserves for future repairs related
to the Company's interests in land and flowage rights in undeveloped property in
Killingly, Connecticut. The reserve for repairs was accrued in 2018 and the
repair work was completed in 2019.
Impairment of undeveloped land
For the year ended December 31, 2018, the Company recorded an impairment loss in
the amount of $355,000 due to the Company's belief that the value of the land is
nominal as a result of ongoing remediation efforts and no active market for sale
of such land.
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Income taxes
For the years ended December 31, 2019 and 2018, the income tax expense related
to continuing operations of $25,000 and $40,000, respectively, substantially
represents state minimum income taxes.
The sale of Winthrop on July 17, 2018, which resulted in a gain of approximately
$1,200,000, had no impact on income tax expense. Due to differences in basis for
tax purposes and financial reporting purposes, the sale resulted in a tax loss
of approximately $2,000,000.
With the exception of the deferred tax asset related to the AMT credit
carryforward, the Company recorded a full valuation allowance against its net
deferred tax assets. Due to a full valuation allowance to offset deferred tax
assets related to net operating loss carryforwards attributable to the loss, no
tax benefit has been recorded in relation to the pre-tax loss from continuing
operations for the years ended December 31, 2019 and December 31, 2018.
Income from discontinued operations
During the year ended December 31, 2018, income from discontinued operations was
as follows:
Year Ended December 31, 2018
Net assets held for sale at July 16, 2018 $ (4,957 )
Selling price, as adjusted 6,173
Transaction costs (552 )
Income from discontinued operation 146
Income from discontinued operation $ 810
Financial condition, liquidity and capital resources
Liquidity and Capital Resources
At December 31, 2019, the Company had cash and cash equivalents totaling
$7,336,000, which it intends to use to acquire interests in one or more
operating businesses, to fund the Company's general and administrative expenses,
and the directors will also consider alternatives for distributing some or all
of its cash and cash equivalents to stockholders. The Company believes that its
working capital is sufficient to support its operating requirements through
March 31, 2021.
The increase in cash and cash equivalents of $1,173,000 for the year ended
December 31, 2019 was the result of $1,807,000 used in operating activities,
offset by net cash provided by investing activities from the redemption of U.S.
Treasury Bills of $2,980,000.
During the year ended December 31, 2018, the sale of Winthrop provided net
proceeds of $5,448,000, which is included in the net cash provided by investing
activities.
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